Abstract
With the continuous development of the capital market, the quality requirements for the audit reports of listed companies are becoming stricter and stricter. On December 23, 2016, China officially released the auditing standards of China certified public accountants no.1504—communicating key audit matters in audit reports. Listed companies listed on A + H shares implemented the new standards in their financial reports from January 1, 2017, and fully implemented standard 1504 from January 1, 2018. Under the new standards, the audit reports of listed companies disclose the key audit matters that have significant impact during the current audit process. This paper studies the format, content and quantity of disclosure of key audit matters, and analyzes the disclosure of key audit matters of China’s A-share listed companies from 2016 to 2018 and summarizes the impact of disclosure of key audit matters from three aspects: users of financial reports, auditors and the audited entity.
Highlights
In recent years, economic globalization has promoted the increase of accounting estimation and judgment, the increasing complexity and difficulty of understanding financial statements (PCAOB, 2016), coupled with the failure of audit early warning mechanism in the financial crisis
The audit reports of listed companies disclose the key audit matters that have significant impact during the current audit process
This paper studies the format, content and quantity of disclosure of key audit matters, and analyzes the disclosure of key audit matters of China’s A-share listed companies from 2016 to 2018 and summarizes the impact of disclosure of key audit matters from three aspects: users of financial reports, auditors and the audited entity
Summary
Economic globalization has promoted the increase of accounting estimation and judgment, the increasing complexity and difficulty of understanding financial statements (PCAOB, 2016), coupled with the failure of audit early warning mechanism in the financial crisis. The theoretical and practical circles gradually found that the traditional disclosure method of audit reports could no longer meet the increasing information demand of the capital market (PCAOB, 2016), and its binary method of audit quality (qualified or unqualified) led to the lack of effective incentives for quality improvement in the audit market (Francis, 2011). Countries in turn carry out the audit report reform, requiring auditors to disclose the most important matters for the current
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